I think you mean using your iPod Touch as a hdd. I think it may be possible as its been done with older iPods. To do this, you would have to format your entire iPod, this means it will no longer be able to be used for music/video/games/apps and its other features. If you ask me, that's a waste. You can get a much bigger Hard Drive for much less online. Even if you were to format your iPod to WBFS that doesn't mean it would even be capable to run on USB Loader.

It is too a bit too small, i think. If it were able to hold any games, the most it would be able to hold is 1. Also note, there may be capability issues which may cause crashing/black screens etc. If you want to use it then format it using WBFS Manager